Court Refuses to Discard Totality of Circumstances Test for Good Faith

Posted by NCBRC - May 9, 2018

A chapter 13 plan must still be proposed in good faith under the totality of circumstances test even if it complies with Code provisions for confirmation. Booker v. Johns (In re Booker), No. 16-1604 (W.D. La. April 17, 2018).

Although the trustee did not challenge Webster and Lillie Bookers’ first chapter 13 plan, which proposed to keep their boat and various other secured items and paid only 4% to unsecured creditors, the bankruptcy court held a hearing and found the plan was not proposed in good faith. After filing a successful plan, the Bookers appealed the denial of confirmation of the first plan to the district court.

On appeal, the Bookers argued that the issue of good faith under section 1325(b)(3) was no longer subject to a totality of the circumstances test, but should be addressed solely in relation to the protections provided for in Code sections 1325(a)(4) – the best interests of the creditors test; 1325(a)(6) – the feasibility test; 1325(b) – the disposable income test; and 1322(d) the commitment period. The district court disagreed and upheld the continued viability of the totality of circumstances test under which factors involving the debtor’s state of mind and the debtor’s honesty and attempt at fairness are relevant considerations.

The case turned largely on the Bookers’ intention to keep their boat. The district court found that the bankruptcy court properly applied the totality of circumstances test when it rejected the Bookers’ claim that they needed the boat for fishing to supplement their diet, and for their general mental and physical health. The bankruptcy court looked to the fundamental fairness of the plan and, with respect to the boat, found that the Bookers could fish without a boat and did had a sufficient food budget. Noting that faced with the same evidence, the district court might have reached a different conclusion, it nonetheless found that the bankruptcy court’s findings were not “clearly erroneous” and that the bankruptcy court was in the best position to assess the evidence. It affirmed.

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